"In the UK, the majority of private pension schemes prevent the withdrawal of money before age 55, such as personal and workplace pensions."
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Impact on Pension Pot Size
As we know, withdrawing your pension early will inevitably reduce the size of your pension pot. The earlier you start taking money out, the less you’ll have left when you reach your state pension age. This can have a significant impact on your lifestyle during retirement.
When you take money out of your pension pot, it’s not just the amount you withdraw that you lose. You also lose any potential growth on that money through interest. Over time, this can seriously impact the overall size of your pension pot.
If you take a large lump sum from your pension pot, you might be reducing the amount you could contribute in the future.
In most cases, once you start taking money from your pension pot, the annual allowance for how much you can pay into your pension drops from £40,000 to £10,000.
The size of your pension pot can also be affected by charges from your pension provider for early withdrawal.
These charges can be quite substantial, making it essential to understand them before withdrawing your pension early. This provides you with the best opportunity to avoid these charges.